KUALA LUMPUR: HSBC Holdings plc senior Asian economist Robert Prior-Wandesforde expects Malaysia’s gross domestic product (GDP) to expand 7.3% this year on rising exports fuelled by higher commodity prices and domestic demand.

His forecast for 2010 was revised from the 6.8% made last year and higher than Bank Negara’s forecast of 4.5% to 5.5% in the 2009 annual report.

“We’re looking at a very vigorous V-shaped recovery from the exports side for Asia and Malaysia’s export-led economy will definitely benefit from this recovery,” Prior-Wandesforde told reporters on the sidelines of the Activate Asia: India in Focus seminar organised by HSBC Bank Malaysia Bhd yesterday.

He said there were also signs that private consumption had risen strongly due to confidence in the economy returning.

However, Prior-Wandesforde said while indications suggested growth would be broad-based this year, growth levels would not sustain beyond 2010 but return to trend growth of 4.5% to 5% annually in the next five to 10 years on structural impediments.

He said the reforms suggested by the National Economic Advisory Council to the Government and encapsulated in the recently unveiled New Economic Model were sensible but a lot depended on the delivery.

“Clearly the aim is to raise growth via structural reforms but this will take time. How this is enforced will be crucial as generally, there’s a lot of room for improvement,” he said, citing bureaucratic red tape and corruption among the reasons why foreign direct investment had dropped and domestic investors had invested abroad.

He said there was currently scepticism among investors that the reforms would be implemented. “Investors will need a lot more convincing,” Prior-Wandesforde said.

He expects Bank Negara to raise the rates of the country’s benchmark policy rate – the overnight policy rate (OPR) – by another 75 basis points to 3% this year.

“Any raising of the OPR by Bank Negara should be seen as a normalisation,” Prior-Wandesforde said, adding that this meant the minimal level for policy rates to be considered normal would be 3%. The OPR currently stands at 2.25% after Bank Negara raised it by 25 basis points in March.

On Thursday, the World Bank’s lead economist for East Asia and Pacific Ivailo Izvorski said the region’s real GDP was expected to grow 8.7% this year after it slowed to 7% last year from 8.5% in 2008.

BANK Negara’s decision to raise the overnight policy rate (OPR) by 25 basis points on March 4 must have jolted many people out of their slumber into realising that the days of low lending rates may be numbered.

While some Malaysians, especially those who are risk-averse and prefer to keep their savings in banks, are rejoicing that interest rates on deposits are on the way up, there are those who must be apprehensive that they will have to fork out higher loan interest payments.

Those in the second group, including corporate and retail borrowers, should recognise that the low interest rates that they had been enjoying for close to two years came at a cost.

Malaysians generally have a high propensity to save and the all-time low interest rates have been frowned upon by savers, especially the retirees who are mostly dependent on their interest income to get by in their golden years.

It is only fair that they be compensated for their prudence – a strong trait among Asians that may have saved the region from further financial quagmire brought on by a widening sovereign debt crisis in some western economies.

The recent OPR hike will certainly not be the only adjustment by the central bank, considering the country’s lending rates are still at record lows.

We can expect more upward adjustments in the coming months as there is still room for rates to rise at least another 50 basis points should Bank Negara act in response to a stronger local economy.

Normalising the interest rates by allowing it to be decided by actual market forces of demand and supply is certainly more healthy.

Although there are now more avenues to invest one’s savings, property is clearly a favourite.

Most of the big property companies are raking in record sales and some of the projects, especially those in Penang and the Klang Valley, are once again selling like “hot cakes”.

Although there is no property bubble – a situation where prices escalate to artificially high levels that do not reflect the actual market fundamentals of demand and supply – there may be a chance of this happening if we are not careful.

We only have to look at the many condominium blocks in the Kuala Lumpur City Centre locality. Their prices have fallen by up to 30% as demand for high-rise residences is still quite lethargic, with no signs of a recovery anytime soon.

The huge price correction can be attributed to a high percentage of investors and speculators in that market segment compared with the owner-occupier buyers.

Hence, there is a need to rein in speculation in our property market. Higher interest rates also signify confidence that the market will hold out well.

It will complement the move to reinstate the real property gains tax, albeit at a flat 5% for all property sales within the first five years of purchase.

Curbing excessive speculation will help prevent overheating in the market.

Property prices should be determined by actual demand and supply forces and not by artificial means.

KUALA LUMPUR: Banks have begun raising their base lending rates (BLRs) following Bank Negara’s move to lift the overnight policy rate (OPR) by 25 basis points last week.

Five of the largest banks in the country raised their BLR to 5.8%.

Malayan Banking Bhd (Maybank) and CIMB Bank Bhd were the first two banks to announce their interest rate hike from 5.55%.

The two banks raised their BLR and base financing rates to 5.8% effective today following Bank Negara’s OPR revision last Thursday.

In a statement, Maybank president and CEO Datuk Seri Abdul Wahid Omar said the interest rate revision was based on the recent adjustment in the OPR.

“We expect to see better growth from our core business segments, leveraging on the improving economic environment and as more customers take advantage of the diversity of our product and service offerings,” he added.

Public Bank will also raise its BLR to 5.8% today, according to Bank Negara’s banking info website.

“We are supportive of Bank Negara’s move to normalise interest rates as the economy regains stability and are immediately transmitting it to both savers and borrowers,’’ said CIMB group chief executive Datuk Seri Nazir Razak in a statement.

Nazir said it was the right time to raise interest rates as the economic environment had normalised and growth momentum was strong.

“We saw the fourth quarter gross domestic product (GDP) numbers and we are looking at a GDP growth north of 4% this year potentially,’’ he told reporters at the launch of CIMB Twin Yield Income Investment structured product yesterday.

“Those conditions suggest that it is time to normalise interest rates. As best as I can tell, it is a good decision.’’

CIMB also raised its savings and fixed deposit rates by up to 25 basis points.

The RHB banking group also raised its BLR for RHB Bank Bhd to 5.8% today.

In a statement, group managing director Datuk Tajuddin Atan said RHB would be balancing the increased borrowing rates by offering more competitive rates for depositors.

Hong Leong Bank Bhd will increase its BLR to 5.8% effective March 10.

Bank Negara raised the OPR as the economy has improved significantly and returned to its path to recovery.

“Given this improved economic outlook, the Monetary Policy Committee (MPC) decided to adjust the OPR towards normalising monetary conditions and preventing the risk of financial imbalances that could undermine the economic recovery process,’’ said Bank Negara in its monetary policy statement last week.

“At the new level of the OPR, the stance of monetary policy continues to remain accommodative and supportive of economic growth.”

A rise in interest rates is usually greeted with trepidation as economists typically worry about its impact on growth and demand.

This time around, that apprehension is not yet visible.

“At the moment the impact will not be great as it is coming off historic lows,’’ said AmResearch economist Manokaran Mottain.

The Association of Banks Malaysia said the increase in OPR would not impede access to financing nor affect the industry’s lending activities.

The banking industry recorded a loans growth of 8.6% in January and 7.8% in December.

Analysts said the impact the BLR increase would have on bank’s profits would depend on whether deposit rates would be raised by the same quantum.

They said bank margins were squeezed when interest rates were cut but they expected net interest margins to widen as interest rates rose.

KUALA LUMPUR: Standard Chartered Bank Malaysia Bhd has forecast the overnight policy rate (OPR) to gradually increase to 2.75 per cent by mid-2010, said managing director and chief executive officer Osman Morad.

Currently, interest rates stood at two per cent.

“We foresee a gradual rise in interest rates starting from the end of the first quarter this year,” he told reporters after opening its newly-relocated branch at Bandar Puteri in Puchong on Tuesday.

“I think Bank Negara has released their statement to make it very clear that they are concerned about growth and we will probably see a rise in OPR.(Based on) Our own internal forecast, we’ll see a possible two to three increases,” he added.

Meanwhile, Country Consumer Banking Head Tiew Siew Chuen said the bank hoped to upgrade, relocate and renovate 30 to 35 per cent of its premises over the next three years.

She said that it was part of the bank’s efforts to focus on customers’ needs and develop long-term relations with them by offering better banking experience.

Currently, the bank has 33 branches nationwide.

She said Standard Chartered Bank had lots of plans going forward to continuously upgrade its branches across Malaysia. – Bernama

KUALA LUMPUR: Bank Negara’s move to potentially raise interest rates in the near future should be viewed as a “normalisation” process, rather than an act of “tightening” monetary policy, said governor Tan Sri Dr Zeti Akhtar Aziz.

She emphasised the need for the markets to make a distinction between normalisation and tightening, pointing out that the significant reductions in interest rates implemented by the central bank last year were just an emergency position that the country had to take to avoid a fundamental recession.

“We need to look towards the normalisation of interest rates at some point. It should not be seen as tightening,” Zeti told reporters yesterday after a public lecture by Dr Abbas Mirakhor, the first holder of the International Centre for Education in Islamic Finance Chair.

Zeti voiced her concern that if interest rates were kept too low for too long, people would turn away from the conventional banking system in search of other instruments to enhance their returns on savings, and that could possibly involve them taking excessive risks without realising it.

“That could create a problem later on.

“We don’t want to wait for something to happen and then only take action,” she added, while pointing out that there was no sign of asset bubble forming or excessive leverage by consumers in the country yet.

“Borrowings of households are still at prudent levels,” she said.

On Tuesday, Bank Negara kept its overnight policy rate unchanged at a record low of 2%, but indicated that it could not keep the rate too low for a prolonged period as the local economy strengthened, otherwise, there would be a build-up of financial imbalances in the system.

The markets took that statement as a hint that the central bank would raise interest rates sooner than expected.

According to Zeti, the central bank could not tell when it would raise interest rates and by how much, but she said the monetary policy committee would continue to assess the prevailing economic trends to decide on the right quantum and timing to do so.

The next meeting of the monetary policy committee at Bank Negara is scheduled for early March.

“Anyhow, our stance is still to remain accommodative to support growth, especially in an environment where inflation is going to remain modest,” Zeti said.

The Government has targeted to hit a 5% gross domestic product growth this year, although the official forecast is for between 2% and 3% growth this year.

PETALING JAYA: Benchmark interest rates are set to gradually rise by 25 to 75 basis points before year-end after Bank Negara signalled its readiness to normalise interest rates in due course as a pre-emptive move to prevent the build-up of financial imbalances, say economists.

RAM Holdings Bhd chief economist Dr Yeah Kim Leng said although the overnight policy rate (OPR) was maintained on Tuesday, the central bank had signalled its discomfort over holding interest rate too low and for a long period of time.

“As exemplified by the US subprime mortgage and housing market crisis, which some analysts attributed to overly low interest rates being stayed too long, loose monetary policies inevitably spawn overleveraging, excessive risk-taking and asset bubbles,” he told StarBiz yesterday.

At 2% currently, the OPR was lower than the average 2.5% to 2.8% seen in the year following the country’s most severe recession in 1998, he said.

“Depositors and savers are currently bearing the brunt of a low interest rate environment, which is aimed at spurring domestic demand,” he added.

With headline inflation or consumer price index turning positive in December, Yeah expected the upward adjustment to take place in the first quarter of this year, but the quantum would likely be gradual given that domestic demand was not expected to accelerate strongly as global economic recovery, especially growth in the advanced economies, remained sub-par and tentative.

“We expect a 25-basis point adjustment to bring the interest rate level to a more ‘normal’ level which we define as one that remains low and supportive of domestic financing and other economic activities,” he said.

However, he noted that the case for a 50-basis point hike was less compelling unless both domestic and external demand surged in the coming months.

“Nonetheless, a 50-basis point adjustment cannot be ruled out as a front-loaded measure to normalise the interest rate for the rest of the year,” he added.

Meanwhile, Malaysian Rating Corp Bhd chief economist Zahidi Alias noted that it was imperative that the quantum of any OPR hike take into consideration the growth of the economy relative to its potential output.

“One must bear in mind that at this juncture, policymakers might not be aggressive in hiking rates to ensure that the economy continues to pick up pace, and households do not become unduly burdened by heightened debt-repayment amounts,” he told StarBiz.

Nevertheless, if the economy persistently expanded more than its potential rate which the International Monetary Fund estimated to be around 4.25%, interest rate hikes were likely to happen to prevent the economy from overheating, Zahidi added.

Maybank Investment Bank Bhd (Maybank IB) chief economist Suhaimi Illias said in a note Maybank IB was prompted to revise its OPR forecast to a 50 to 75-basis point hike compared with no change previously following Bank Negara’s latest indication.

“Still, the expected magnitude of increase in OPR this year is less than the 150-basis point cuts between November 2008 and February 2009. This should still keep the monetary policy stance accommodative to spur private sector demand (consumer and business spending) as the Government aims to trim its deficit spending, hence public sector demand, in the medium term starting next year, to RM40.5bil (5.6% of GDP) from RM51.1bil (7.4% of GDP) last year, and eventually to -3% of GDP by 2015,” he said.

Meanwhile, Kenanga Research said although the sudden change in the central bank’s tone would likely be interpreted as a signal that it may soon raise rates, the research house believed that it generally reflected Bank Negara’s genuine concern and way of managing market expectations.

“The current unsettling global financial environment as well as the modest recovery trend outweighs any inflationary concern or unchecked asset bubble at the moment. Hence, we expect the OPR to be raised incrementally from mid-2010, from 25 to 50 basis points to 2.5% by year-end,” it said.

OSK Research in a latest update concurred that Bank Negara would hold interest rates steady till June in its efforts to boost liquidity as the Malaysian economy was still finding its footing with third quarter GDP still contracting at 1.2% and unemployment coming in at 3.6%.

“However, we do not discount a potential hike in interest rate in the second half of 2010 as the economy gains traction and inflation exerts its influence.

“Even if there is a hike, we believe it would be on a gradual basis, for example by 25 basis points per policy meeting, to ensure the sustainability of economic recovery,” it added.

CIMB Research also expects interest rates to be raised at a measured pace, and possibly sooner than expected in the first half of the year.

It has revised its OPR target for the year to 2.5% from 2% for 2010.

“As this will still be lower than the historical OPR since 2004, the rate move will not have a significant impact on demand,” it said.

By LAALITHA HUNT, Tuesday November 3, 2009

PETALING JAYA: Average lending rates are on an uptick with banks possibly positioning themselves for a gradual increase in the rates for their long-term loans.

The monthly statistical bulletin released by Bank Negara for September showed that average lending rate (ALR) was 4.91% compared with 4.9% in August and 4.96% in July. The average base lending rate (BLR) remained unchanged at 5.51% as at Oct 15.

According to UOB Kay Hian Research’s latest update, one of the first loan segments to be impacted would be mortgages. The report said that financing for the purchase of residential properties, which comprise 27% of total loans in the banking system, would likely slow down due to the re-introduction of real property gains tax as part of the measures under Budget 2010.

Mortgage growth would also take a temporary adjustment due to a rise in effective lending rates as banks lowered their mortgage spreads, the research house added.

“Our market survey shows that mortgage spread has been reduced from the previous BLR minus 2%-2.3% to BLR minus 1.6%-1.9%,” the report said.

The rate increase was expected to mitigate the slower loans volume growth, the research house added.

“In this scenario, Public Bank would benefit the most from its strong loans growth supported by its strong branding and lower cost of funding,” the report said.

An analyst with another brokerage said he had heard reports of the rise in effective rates recently but declined to comment further. Banks, when contacted, declined comment on this matter.

Banking data for September continued to show strong credit demand from the household sector, leading to total loans growth of 7.2%.

Loan applications in the household sector amounted to RM23.2bil in September, compared with monthly average of RM22.8bil in the preceding eight months to August.

UOB Kay Hian Research noted that robust approvals in the six months to Sept 30 would sustain strong loans growth in the fourth quarter of this year and the first quarter of 2010.

“However, potential slower property sales and credit card demand due to the new budget measures would likely lead to slower loans growth in the second half of 2010,” the report said.

The research house, however, maintains its “overweight” call for the banks as slower growth would be mitigated by the increase in effective lending rate.

Source: http://biz.thestar.com.my/news/story.asp?file=/2009/11/3/business/5030022&sec=business